Parliament to pass weak laws on oil

By Haggai Matsiko & Mubatsi Asinja Habati

Corruption feared as laws vest too much power in executive over contracts

The government has abandoned a key legislation for the oil sector—the Oil Revenue Management Bill—without which revenues from the sector might end up managed poorly.

The government had promised to table this Bill to be debated together with two others—the Petroleum (Exploration, Development and Production) Bill 2012 (the Upstream Bill) introduced on Feb.8 and the Petroleum (Refining, Gas Processing and Conversion Transportation and Storage) Bill, 2012 (the Mid-stream Bill) introduced on February 14.

Sources privy to the discussions have told The Independent that the Oil Revenue Management Bill, which was to lay out how the government uses money from oil sales, has been abandoned.

“They have decided to abandon the idea of a separate revenue management law yet this is where the crux of the oil matters lie,” Shem Byakagaba, Managing Consultant at the legal and governance consultancy firm, Lantern Consult International, said. “They are going to amend the Public Finance Act (instead).”

When contacted, Energy Minister Irene Muloni confirmed this: “The issue is being handled by the Minister of Finance. It will be tabled soon in parliament through amendment of the Public Finance Management Act,” she said.

Experts within the sector who had hoped that the Energy ministry would keep its word and table the Bill that is considered very critical given that it deals with the national oil purse are expressing their disappointment. Byakagaba says a comprehensive but separate oil management Bill would guarantee good revenue governance as it is the case in some oil producing countries.

A local NGO, Advocates Coalition for Development and Environment (ACODE), in a review of the Oil and Gas Policy and Legal Framework for Uganda, quotes a statement former Deputy Managing Director of the IMF, Agustine Carstens, about the danger of poor management of oil revenue.

Carstens said: “The experience of some developing countries in the management of oil wealth offer dramatic illustration of the problems that could be posed by resource riches. Typically, the exploitation of oil generates very large and sudden revenue inflows. This change alone creates significant challenges for developing countries, not least because their administrative systems are often not well-equipped to handle such flows. Throw in uncertainty associated with volatile oil prices, and you have an added layer of complexity that further strains an already overburdened system. At best, these circumstances challenge the most able policymaker on how to handle the new-found wealth. At worst, they present prime opportunities for outright corruption.”

Corruption and personalisation of oil revenue by President Yoweri Museveni and other officials of his government and family are the biggest fears of those opposed to abandoning the Oil Revenue Bill.  International experts have raised concern that the two Bills before parliament are inadequate. They warn that the absence of the Revenue Management Bill further casts a shadow of an “oil curse” on Uganda’s oil sector.

“The danger of this (shelving the Revenue Management Bill) is that it undermines the details we would have in the regulation of oil revenues,” Byakagaba, who has accessed the copy of the proposed amendments in the Public Finance Management Act told The Independent, “The simple reasoning behind the proposed amendments is that should we have separate revenue laws on management of resources like national parks, lakes, minerals? But there are many challenges in this.”

He says the revenue management law is where government’s cheque, royalties, the stake of local governments, etc would be discussed.

“Mismanagement of oil resources has often occurred at revenue generation. The revenue management is a big component in oil government and it can’t be swept under amendment of the Public Finance Act,” he said.

Parliament locked out

International pressure group, Global Witness, is also cautioning about the Bills. In its recent report Uganda’s petroleum legislation: Safeguarding the sector released on Feb.28 2012, the group cautions that since neither of the two Bills before parliament deals adequately with the crucial issues of revenue collection and management, financial transparency or oversight, parliamentarians should not pass them into law until the government introduces the Bill too.

International organizations, notably International Alert and Platform, have cautioned against inadequate legislation of the oil sector.

A group of Scholars, Prof. Jenik Radon, Marie-Pauline Jeansonne and Sri Swaminathan, all from Columbia University School of International and Public Affairs, are also cautioning against glaring issues in Uganda’s oil Bills.

All the three groups’ reports caution against one big problem—the Bills vest a lot of powers in the minister in charge of oil and do not put in place sufficient checks to make the minister accountable.

The groups agree that most important decisions are left to the discretion of the minister to whom almost all key players in the sector are answerable. This includes members of a commission of inquiry, in case one is put in place.

“For instance although the Bills put in place an oil a Petroleum Authority and a National Oil Company, these are not defined and not insulated against political influence and the authority’s autonomy is subject to the control of the minister,” says Byakagaba, “another big concern is that these bills also undermine the role of parliament.”

In a May 2011report, Oil and Gas Laws in Uganda: A Legislators’ Guide, International Alert, notes just like in the previous Act, there is no provision in the new Bills requiring parliament to give approval to oil contracts.

“Parliament is remarkably absent across the different sections on institutional arrangements, licensing, development and production, etc. This is a major challenge that requires urgent rethinking,” notes the report.

Released shortly after the tabling of the first Bill, another paper dated Feb.12, The Ugandan Upstream oil law: A search in vain for accountability and democratic oversight, by the London based oil experts, Platform, also raises similar concerns.

According to Platform, the Exploration Bill reduces the role of Parliament to only receipt of annual reports and accounts of the Petroleum Authority and an annual statement detailing the monies received from royalties.

“This is insufficient to ensure effective governance,” Platform notes, “the Bill does not guarantee Parliament any leverage or the ability to demand answers. Good practice requires that contracts and petroleum production licenses be approved by Parliament, and listed in parliamentary registers. It is unclear why such procedures are not being followed here.”

Minister too powerful

International Alert also notes that while the National Gas and Oil Policy provides for an independent institution, the Petroleum Authority (with powers to regulate exploration, development and production, processing, transportation and storage of petroleum and gas in Uganda), the Minister responsible for petroleum activities has power to give directions in writing to the authority with respect to the policy to be observed and implemented, and the Authority must comply with those directions.

The Minister also appoints members of the board of directors among whom he or she can appoint a chairperson; yet it is the same board that is mandated to oversee the operations of the authority, the group adds.

“It further appears that there is no clear separation of roles and responsibilities between the board and the authority, because the board can, by instrument, delegate to an officer of the Petroleum Authority any of the powers, duties or functions of the board,” the paper notes.

The paper also notes that although the Bill establishes a National Oil Company (NOC), with the responsibility to manage, on behalf of the state, the commercial aspects of petroleum activities and the participating interests of the state in the licences, the Bills do not detail its mandate or organisational structure any further.

Rather than having one commissioner as was provided for in the Act, the relevant Bill establishes two, the report notes. The Commissioner for Petroleum Exploration, Development and Production (charged with facilitating and assisting in policy development, promotion and licensing of exploration, development, production and transportation of petroleum up to off-take points) and the  Commissioner for Petroleum Processing, Transportation and Storage who will facilitate and assist in policy development, promotion and licensing of the processing, transportation and storage of petroleum and gas processing, the report notes.

The concern here, International Alert states, is that there is no clear relationship between the office of the commissioners and the Petroleum Authority and the Ministry, and that by doing this, the Bill sets a risk that the system could create unnecessary duplication or bureaucratic delays, and multiply the potential for bureaucratic competition, corruption or mismanagement.

Corruption protected

Platform notes that the Bill does not create the basis for accountability to or oversight by Parliament of the Board of Directors appointed by the Minister.

“There is no opportunity for nomination hearings, the London-based group notes, “Board members can only be removed by the minister. The Executive Director is answerable solely to the Board. The Board is answerable solely to the Minister. This also reduces the possibility for Parliamentary oversight.”

As for the NOC, Platform says that since the Bill stipulates that various plans, budgets and reports be submitted to the Annual General Meeting of the NOC (which is unclear how it will be run), there is no guarantee that any of these documents, including the basic annual accounts, will be submitted to Parliament, let alone published publically.

To Platform, the Bill focuses on measures that will restrict openness, rather than guarantee it.

“While punishment for disclosing information is stipulated in clause 37, there is no whistleblowing protection guarantee, to ensure protection for disclosing information of crucial public interest, such as related to corruption or dangerous regulatory failure,” its February report notes.

In summary, Platform notes that the Exploration Bill does not create necessary provisions for transparency, parliamentary oversight, consultation or involvement of affected communities, while it does include clauses that restrict information flow and could potentially even threaten public debate.

It cites Clause 162 which it says is “particularly bizarre”. “Any person who knowingly or recklessly makes a statement or produces a document that is false or misleading in a material particular to the authorised officer engaged in carrying out his or her duties and functions under this Act, commits an offence and is liable on conviction to a fine not exceeding one hundred thousand currency points or imprisonment for a term not exceeding ten years or both.” One currency point is equivalent to Shs 20,000.

According to Platform, this clause designed to be purposefully vague and general, while combined with a very serious punishment threatens public engagement and debate in these issues. It adds that particularly the inclusion of “recklessly” and “misleading” appears dangerous.

Platform adds that the penalties for Ugandan citizens resulting from Clause 163 also appear very severe.

“For example, an affected community member who is unhappy about a lack of compensation could potentially “molest” or “hinder” an oil company operating near his or her home “without reasonable excuse” – but the threat of imprisonment for 5 years seems extreme,” Platform notes, “In comparison, according to clause 168, if a company places false information in its affidavits and reports to the Minister or Authority, it is liable to a maximum of 5,000 currency points (Shs 100 million).”

Platform also notes that the fines for violating the standards set for safety, health, environment and welfare of personnel are capped and limited to 100,000 currency points in Clause 90 (4), are comparatively low, given the potential costs of an oil spill, and can incentivise cost-cutting.

The Global Witness report that was released after the two Bills were in parliament and handed to MPs who sit on the Natural Resources Committee that attended the Parliamentary Forum on Climate Change’s debate on the Bills also raises concern that on issues of environment protection. The Bills refer to ‘best petroleum industry practice not singling out speci    fic guidelines and principles in relation to best practice in the relevant areas like the International Finance Corporation Performance Standards or the IMF’s Guide on Resource Revenue Transparency, or  The Citizens Checklist from the Global Witness Report, Rigged: The Scramble for Africa’s Oil, Gas and Minerals.

The group notes that without clear laws on revenue management and financial transparency Uganda’s petroleum legislation will remain incomplete and partial.

Global Witness makes five major recommendations, reducing direct ministerial discretionary control of the sector, providing a strong role for Parliament in the management of the petroleum sector by giving them the explicit power in the legislation to approve new acreage, regulations, licences and contracts and play a greater oversight role.

It adds that there is need to commit to making all documents relating to the petroleum sector public unless they fall within tightly and specifically defined exemptions. Global Witness also urges the government to commit to financial transparency in the management of petroleum revenues and bidding processes; arguing that the present revenue management legislation be considered alongside these two Bills, before passing them into law.

As parliament embarks on debating the laws, experts hope that the MPs are keen enough and address these issues.

Don’t rush Petroleum Bills debate

Parliament will soon begin debating the Bills on oil exploration, development and production, refining, gas processing and conversion, transportation and storage. The executive wants Parliament to debate and pass the Bills into law within 45 days. The Independent’s Mubatsi Asinja Habati spoke to Shem Byakagaba, managing consultant at Lantern Consult International and a former government lawyer who was involved in the drafting of the Bills.

What are the outstanding issues in the Bills that MPs should look out for?

This is not a bad Bill but on the scale of 100% I would rate it 60%.  What will matter is implementation of the law. The Bill needs to be looked at in its entirety because it is a fundamental departure from the current law. The law in place was purposely enacted in 1985 to cater for mineral exploration. So the legal framework, the safeguards, institutional framework were essentially weak. The MPs must look at how to govern the oil sector, the institutional framework, how the business is guaranteed, access to information, checks and balances, human rights, issues of licensing, environmental protection, revenue management, who owns this resource, who are the actors what is their role, etc.

Do the Bills address these issues?

Not sufficiently. Take the example of petroleum rights. It places ownership of oil resource in the hands of government. Of course it would not do otherwise as in the Constitution but the law should say whereas government holds the oil resource in trust of the people of Uganda, these are the rights of actual owners. So whatever structure is created there should be a ring around it so that accountability comes to the people. Otherwise the Bill gives a lot of authority to the government in form of a minister. Government is the president of Uganda. That is the spirit of the Bills and the legislators should go back to the Constitution and find what this means. The laws regarding the environment like one on waste disposal, pollution, land, wetlands, and water bodies were made prior to the discovery of oil in 2006. They never imagined that we would deal with disposal of petroleum waste, issues of accountability while building an oil pipeline. It means we need to review the environmental protection laws with the advent of oil exploitation. Issues of environment are inadequately addressed in the Bill and it is referring to the NEMA Act which was made prior to oil discoveries. These laws are inadequate as they don’t take care of the challenges in the oil industry. Although the Bill says the minister of Energy may make environment related laws but this should be a matter handled by the Environment ministry. I would want to see this debate running even outside parliament. The Bill proposes three institutional arrangements, the minister, oil authority and the national oil company. That’s extremely shallow because a sector like this needs a chain of management that include parliament, government, ministry, authority, private sector players, agencies involved in oil management, etc. the institutions to hold the players to account like civil society, media, opinion leaders, etc have been left out. Instead the Bill loads the minister with all the powers.

What is the problem with the minister having all these powers?

Having a minister that is only accountable to him or herself and with all these powers, running a sector that has revenues half the national budget makes him or her too powerful. You need to take away some of these powers and give them to respective agencies. A minister is a politician; he can be hired today and fired by midnight. Therefore, you must give power to people who are technical. Instead we have a Bill that proposes that the minister shall give instructions regarding the oil sector and the oil authority shall comply. Is the authority independent? Is the minister the best authority to manage the oil issues? When you go through the Bills, right from the institutional structure to licensing everything is about the minister. The authority in the Bill is reflected as a traditional public service department which reports to the Permanent Secretary and minister. It has no will of its own.

Why should there be need to separate politics from oil management?

You still need politics in the management of oil but the role of politics must be defined. Politics is vital in oil management for policy formulation, legislation, setting guidelines, oversight because it is these elected leaders represent people’s views. But there should not be politics in the technical management of oil issues.

Secrecy and access to information regarding oil sector have been contentious issues in Uganda. Does the Bill address these issues?

Not adequately. The bill dilutes the procedures of accessing information in possession of government as it is in the Access to Information Act and makes it even harder to access information regarding the oil sector. They should have distinguished the scenario of petroleum from the general information clearly; showing that this is unique, but for you to access it, do: A, B, C. I hope they will amend this or make a proper regulation to accommodate this. They could even do away with this section.

Any other information you would like to share?

It would have made a lot of sense if these Bills were tabled with the one on revenue management. I am aware they have decided to abandon bringing a separate revenue management law yet this is where the crux of the oil matters lies. They are going to amend the Public Finance Act. This undermines the details we would have in the regulation of oil revenues. Their simple reasoning is whether we should have separate revenue laws on management of resources like national parks, lakes, and minerals? There are many challenges in this.  The revenue management law is where discussions on government cheque, royalties, the stake of local governments, etc should be. Mismanagement of oil resources has often occurred at revenue generation. The revenue management is a big component in oil government and it can’t be swept under amendment of the Public Finance Act.  It has been proposed that local governments where oil is will get a 7% share of the oil revenues. But the local governments have weak accountability frameworks. We need to put stronger revenue management institutions regarding the oil revenues. We need to address oil as a national issue and parliament should not rush the petroleum Bills debate. We need to understand how this impacts on the whole architecture of governance of this country.